19 January 2007
Full report: Ofwat – Meeting the demand for water
Ofwat has secured better data on the amount of water leaking from water companies’ systems, according a report to Parliament by Sir John Bourn, head of the National Audit Office, but there is uncertainty over the effectiveness of water efficiency projects that seek to help consumers waste less water.
The Water Services Regulation Authority (Ofwat) is the economic regulator of the supply and demand for water in England and Wales. Its broad purpose is to regulate in a way that enables companies to secure sustainable supplies at the lowest cost to the consumer. To achieve this it aims to collect relevant and reliable information to underpin its regulatory decisions, provide incentives for water companies to meet future demands and take appropriate enforcement action if companies do not respond to Ofwat’s incentives.
Ofwat has secured better data on leakages. But calculations of leakage still depend on estimates of actual consumption. Consumption figures, even within the same region, range between 124 and 177 litres per person per day. It is not currently clear how much of this difference is due to socio-economic or other factors affecting water use as opposed to inconsistencies in consumption estimations, nor the impact that these differences may have on the aggregate projections of demand.
Ofwat’s approach to setting leakage targets is sensible and supported by 62 per cent of consumers surveyed. Companies have to bring down leakage to the level where the cost of saving another unit of water through fixing a leak is the same as the cost of providing a unit of water through a new supply. Allowing a level of leakage which is economic rather than reducing leakage levels to zero prevents charges to customers from rising unnecessarily.
Demand for water is expected to increase in parts of the country and there are pressures to reduce the amount of water abstracted from rivers and other sources. Evidence from the 2006 drought demonstrates that companies and consumers respond to non-financial incentives during a drought. For example, Anglian Water adopted a policy of prioritising all visible leaks, and consumer demand in the Thames region was 8 per cent less than the norm for the middle of summer. 62 per cent of consumers in water-stressed areas stated they would be more likely to conserve water if water companies themselves conserved water.
The report also points out that evidence on the results of water efficiency projects is growing. Ofwat has co-funded research which it hopes will produce more reliable evidence and has published a good practice register. However, the evidence does not yet enable Ofwat to say which projects are most effective in helping consumers waste less water.
Ofwat sets leakage targets for each of the 22 water companies. Thames Water has persistently failed to meet its leak targets since 2000. In 2006, Thames Water gave an undertaking to Ofwat under which the company has commited to renewing 368 km of pipes at a cost of £150 million, the cost of which is to be met by shareholders and not passed to consumers. However, Ofwat will need to act quickly and firmly against any breach of the agreement as it monitors Thames’s compliance.
To meet the future challenges of water supply, the National Audit Office recommends that Ofwat should press water companies for improved data on leakage and consumption and push for a sustainable approach to leakage management. It should also take a lead in ensuring that there is reliable evidence for the effectiveness of water efficiency projects; and assess companies’ progress on water efficiency programmes based on quality, the amount of water they save and number of consumers reached.
“A good understanding of the needs of water consumers should be at the heart of Ofwat’s regulatory regime. The regulator must work to achieve robust and reliable data on how consumers use water and on how effective water efficiency projects are in conserving water. This data can then be used to underpin its regulatory decisions. “In the case of leakage problems in the Thames region over the last six years, Ofwat has now taken direct action with a view to protecting the consumer. It must ensure, in future, that its enforcement actions are timely and focused on the consumer.”
Sir John Bourn, 19 January 2007